China Yuchai International Limited (CYD) Q3 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the China Yuchai International Limited unaudited third quarter 2015 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise this conference is being recorded today, the 10th of November 2015. I would now like to turn the conference over to Kevin Theiss. Please go ahead, sir.

Thank you for joining us today, and welcome to China Yuchai International Limited's 2015 third quarter conference call and webcast. My name is Kevin Theiss, and I'm with Grayling, China Yuchai's U.S. investor relations advisor. Joining us today are Mr. Weng Ming Hoh and Mr. Kok Ho Leong, President and Chief Financial Officer of CYI, respectively. In addition, we also have in attendance Mr. Kelvin Lai, VP of Operations of CYI. Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words believe, expect, anticipate, project, targets, optimistic, intend, aim, will or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that may be deemed forward-looking statements. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning the company's operations, financial condition. The Company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including those discussed in the Company's reports filed with the Securities and Exchange Commission from time to time. The Company specifically disclaims any obligation to maintain or update the forward-looking information, whether of the nature contained in the script or otherwise in the future. Mr. Hoh will provide a brief overview and summary, and then Mr. Leong will review the financial results for the third quarter and first nine months ended September 30, 2015. Thereafter, we will conduct a question-and-answer session. For the purposes of today's call, the financial results for the third quarter and first nine months of 2015 are unaudited, and it will be presented in RMB and U.S. dollars. All of the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board. Mr. Hoh, please start your presentation.

Thank you Kevin. We are pleased to report continued profitability in the challenging third quarter of 2015, which was highlighted by unusually low demand for mid and heavy duty trucks and mid-duty size buses, lower economic growth and a seasonal quarter third quarter slowdown. While we have strategically diversified our engine offerings to the growth markets that added more light-duty engine model, the mid and heavy duty markets remain important [indiscernible]. In this current automotive market climate, a move to increase efficiency, strength of our balance sheet and maintain strict cost growth. The number of engines sold during the third quarter decreased 24.2% to 84,170 unit compared with 111,023 units in the same quarter of last year. This decline in unit sales primarily resulted from the general weakness of the automotive industry in China and the continuing slowdown of the Chinese economy. The other rate of growth of the Chinese economy was 6.9% in the third quarter of 2015, following a rate of 7% growth in second and third quarters of 2015. The China Association of Automobile Manufacturers, CAAM reported a decline of 5.5% excluding gasoline-powered vehicles in year-over-year unit sales for the commercial vehicle industry. CAAM also reported reduced sales of mid and heavy duty truck, and medium size buses during the third quarter of 2015 compared with the same period a year ago. Net revenue for the third quarter of 2015 was RMB3 billion or $472.4 million compared with RMB3.8 billion in the third quarter of 2014, a 19.9% decline. Market demand for engines especially medium-duty and heavy-duty commercial engines for trucks and medium-duty buses were unusually low. In addition, supply to certain off-road markets such as construction equipment and mining continued to experience lower engine demand while sales of natural gas engine continued to be affected by low steel prices. The decline in unit sales exceeded revenue as we are selling substantially more National IV compliant engines with high average selling prices. Given the current condition, we decided to dispose of our assembly of operations located at Xiamen. Existing customer will continue to be serviced from our manufacturing facility in Yulin. The transaction was completed in the third quarter of 2015. The disposal of Xiamen facility will lower our overall expenses and contribute to improving our profitability in the future. We continue to sell into the bus market in China and globally. In the third quarter of 2015, we won an order to supply approximately 1,300 engines for school buses in Saudi Arabia. This order represents one of the largest export orders for Chinese school bus engine. In the second quarter, we won a competitive bid to supply 600 National V diesel engines Shenzhen Western Bus Company. In the first quarter of 2015, we won a competitive tender to supply 635 engines comprised of V natural gas and diesel engines complying with the Chinese National IV Emission Standards of Beijing Bafangda Express Bus Services Partner Limited. This is a subsidiary of the Beijing Public Transportation Group. Our innovative diesel and natural gas engines help us to maintain our leading position in the bus market in China. Our engines meeting the National IV, V and VI Emission Standards whether they are diesel, natural gas or hybrid engines create opportunities for us to maintain our leadership position in China. We increased our investment in research and development by 6.2% versus nine months and maintained spending this quarter. Through our R&D activities, we further improved our engine products portfolio in terms of market application in the on and off-road markets by creating new models and improving the performance and emissions standards of current models. We are focused on improving our National IV complaint engines, analyzing the technologies from a National V and VI standards. With stricter emission standards expected in the future, we are ready to supply an array of engine models to meet or exceed these standards [indiscernible]. Through our range and advanced engines, we maintained and strengthened customer relationship has obtained our industrial leadership. We rewarded our shareholders with a payment of dividend of US$1.10 per share for 2014 year in July 2015. Based on shareholder elections, the aggregate cash dividend was approximately US23.4 million, with issuance of 1,102,634 new shares. As a result, our outstanding number of common shares [indiscernible] is 39,298,340. Although the near term outlook for commercial vehicle market is uncertain, the longer term trend will slowly improve as market demand is expected to become more balanced over time. We will focus on increasing sales and growing our profitability, generating positive cash flow and maintaining our financial strength. With that, let me now turn the call over to Kok Ho Leong, our CFO to provide more details on the financial results.

Thank you, Weng Ming. I will now proceed to report on our financial performance for the third quarter and first nine months of 2015. Our net revenue for the third quarter of 2015 was RMB3.0 billion, US$472.4 million compared with RMB3.8 billion in the third quarter 2014. The total number of engines sold during the third quarter of 2015 was 84,117 units compared with 111,023 in the same quarter a year ago representing a decrease of 24.2%. As reported by the China Association of Automobile Manufacturers, CAAM, in the third quarter of 2015 sales of commercial vehicles, excluding gasoline-powered vehicles declined by 5.5%. The market remained week in the heavy-duty and medium-duty truck and medium-duty car segment. This registered a decline in sales of 26.0%, 15.7% and 8.3%, respectively. Gross profit was RMB586.8 million, US$92.3 million compared with RMB715.7 million in the same quarter of 2014. The gross profit decline was mainly attributable to the lower unit sales in the third quarter of 2015 compared with the same quarter last year. Gross margin was 19.5% in the third quarter of 2015 compared with 19.1% in the third quarter last year. Other operating loss was RMB24.5 million, $3.8 million, compared with other operating income of RMB39.6 million in the same quarter last year. This decrease was mainly due to a loss of RMB12.5 million from the disposal of GYMCL's entire shareholding interest in Xiamen Yuchai Diesel Engines Co., Ltd., Xiamen Factor, and foreign exchange revaluation losses. In 2014, the company recorded a foreign revaluation gain and waiver of a payable. Research and development, R&D, expenses declined by 1.9% to RMB132.3 million, $20.8 million from RMB134.9 million in the same quarter of 2014. As a percentage of net revenue, R&D spending was 4.4% compared with 3.6% in the same quarter of 2014. R&D expenses reflected development and testing costs as new engines were introduced to the market and GYMCL continued its initiatives to improve engine quality. Selling, general & administrative, SG&A, expenses of RMB355.9 million, $55.9 million, declined from RMB392.7 million in the third quarter last year, a decrease of RMB36.8 million or 9.4%. SG&A expenses represented 11.8% of net revenue compared with 10.5% in the third quarter of 2014. The increase in SG&A percentage was mainly due to the effect of lower sales as well as higher warranty expenses and provision for doubtful debts. Operating profit decreased to RMB74.2 million, $11.7 million, from RMB227.6 million in the third quarter of 2014. The decrease was mainly due to lower gross profit, and other operating losses compared with other operating income in the third quarter of 2014. The operating margin was 2.5% compared with 6.1% in the third quarter of 2014. Finance costs decreased by 40.3% to RMB30.9 million, $4.9 million, from RMB51.7 million in the same quarter last year. Lower finance costs mainly resulted from less bills discounting. The share of joint ventures was a loss of RMB5.9 million, $0.9 million, compared with a loss of RMB2.9 million in the same quarter of 2014. In the third quarter of 2015, profit before tax was RMB37.3 million, $5.9 million, compared with a profit of RMB268.1 million, a decrease of RMB230.8 million. In 2015, there was a loss of RMB17.3 million relating to Xiamen Factory's loss from disposal and writing off of certain plant and equipment. In 2014, there were gains from acquisitions of RMB95.2 million. Therefore, has the profit before tax been adjusted for this event, it would have been RMB54.6 million in the third quarter of 2015 and RMB172.9 million in the same quarter in 2014. In the third quarter of 2015, total net profit attributable to China Yuchai's shareholders was RMB0.35 million, $0.05 million, or earnings per share of RMB0.01, $0.14, compared with RMB143.8 million, or earnings per share of RMB3.77 in the same quarter in 2014. Earnings per share in the third quarter of 2015 was based on a weighted average of 39,142,533 shares compared to earnings per share in the third quarter 2014, which was based on a weighted average of 38,135,182 shares. Let me now go over to the financial highlights for the nine months ended September 30, 2015. For the nine months ended September 30, 2015 net revenue was RMB10.8 billion, $1.7 billion compared with the RMB12.5 billion in the same period last year. The total number of engines sold by GYM including the first nine months of 2015 was 304,424 units compared with 390,731 units in the same period last year. This decrease of 22.1% compared with the industry decline of 16.2% in unit sales of commercial vehicles, excluding gasoline-powered vehicles, for the nine months of 2015, as reported by CAAM. The market remained weak in the heavy and medium duty truck, and medium-duty bus segments, which registered decline in sales of 29.8%, 25.0% and 5.0% respectively. Gross profit was RMB2.1 billion, $329.9 million compared with RMB2.3 billion in the same period last year. The gross profit decline was mainly attributable to lower unit sales compared with the first nine months of 2014. Gross margin increased to 19.4% compared with 18.5% for the first nine months of 2014. Other operating loss was RMB6.5 million, $1.0 million versus other operating income of RMB81.1 million in the same period last year, a decrease of RMB87.6 million. The decrease was mainly due to a loss of RMB12.5 million from the disposal of GYMCL's entire shareholding interest in Xiamen Factory and foreign exchange revaluation losses. In 2014, the Company recorded a foreign revaluation gain and waiver of payable. Research and development, R&D expenses increased by 6.2% to RMB384.5 million, $60.4 million compared with RMB362.0 million in the same period in 2014. As a percentage of net revenue, R&D spending was 3.6% compared with 2.9% in the nine months of 2014. R&D expenses increased mainly due to the ongoing research and development of new and existing engine products as well as continued initiatives to improve engine quality. Selling, general & administrative, SG&A expenses declined 6.5% to RMB1.06 billion, $167.3 million compared with RMB1.14 billion in the same period last year. SG&A expenses represented 9.9% of net revenue for the first nine months of 2015, compared with 9.1% in the same period last year. Operating profit decreased to RMB643.0 million, $101.1 million from RMB901.5 million in the same period last year. The decrease was related to lower gross profit and other operating loss compared with other operating income in the third quarter of 2014. The operating margin was 5.9% compared with 7.2% in the same period last year. Finance costs declined 21.6% to RMB94.3 million, $14.8 million from RMB120.2 million in the same period last year, a decrease of RMB25.9 million. Lower finance costs mainly resulted from less bills discounting. The share of joint ventures was a loss of RMB19.2 million, US$ 3.0 million, a reduction in loss of RMB7.8 million compared with a loss of RMB27.0 million in the same period in 2014. In the nine months ended September 30, 2015, net profit before tax was RMB529.5 million, US$83.2 million, compared with a profit of RMB849.6 million, a decrease of RMB320.0 million. In 2015, there was a loss of RMB17.3 million relating to the Xiamen Factory's loss from disposal and writing off of certain plant and equipments. In 2014, there were gains from acquisition of RMB95.2 million. Therefore, the profit before tax has been adjusted for this event which has been RMB546.8 million in the nine months of 2015 and RMB754.4 million in the same period in 2014. For the nine months ended September 30, 2015, total net profit attributable to China Yuchai's shareholders was RMB282.1 million, US$44.3 million, or earnings per share of RMB7.32, US$1.15, compared with RMB489.1 million, or earnings per share of RMB13.02 in the same period last year. Earnings per share for the nine months ended September 30, 2015 was based on a weighted average of 38,514,783 shares compared with earnings per share for the nine months ended September 30, 2014 which was based on a weighted average of 37,560,020 shares. I will now go to the balance sheet highlights as of September 30, 2015. Cash and bank balances were RMB2.4 billion, US$380.6 million, compared with RMB2.5 billion as at December 31, 2014. Short and long-term borrowings were RMB2.7 billion, US$419.4 million, compared with RMB2.3 billion at the end of 2014. Net inventory was RMB1.7 billion, US$263.1 million, compared with RMB1.9 billion at the end of 2014. With that, operator, we are ready to begin the Q&A session.

Thank you, sir. [Operator Instructions] We have the first question from the line of Alex Potter from Piper Jaffray. Please ask your question.

Hi, can you guys hear me. This is Winnie in for Alex Potter. The first question that I have is just a general question of the market for next year just in terms of what you are seeing from OEM orders and dealer inventory. And when we might see an inflection point in the overall heavy and medium duty market?

Hi, Winnie, this is Weng Ming. Now the home market for 2015 is very weak right now. I mean it’s been very weak throughout the year and this quarter is no exception. As it stands now, even from our own OEMs that we build it, we are still seeing that the market is continuing to be weak, especially for the on-road and off-road markets as well, not just on-road. For 2016, again, there is a lot of uncertainty out there, there is very little visibility. We still -- we can’t really have a good gauge of what’s going to happen next here. As you know, the Chinese government has increased our reserve ratio several times, it’s reduced interest rates several times, still for us, has not lifted our own market weakness from very worst at the beginning of the year. So yeah, in short, we’re still having very little visibility.

Okay. Thank you. And then obviously in the quarter, there is an increase in R&D spending, it was, as you mentioned, 4.4% of sales for the quarter. I was wondering if you can elaborate a little bit on that and what should we expect for that R&D line on a going forward basis? Would the historical level be a bit more reasonable or would this quarter sort of set the trend for the ongoing next three quarters or so?

Okay. I think for R&D, if you look at the year-to-date ratio, we are a bit more appropriate, but going forward, I think although the government has just implemented the national 4 standard last year and, the government has only just recently implemented the C3 standards for off-road. So despite the pollution, we believe the government will introduce other – the national top five and six, we didn’t -- the near future won’t be too far away we believe. So we believe we still have -- we have to continue to invest in developing and analyzing our range of national 5, and national 6 compliance, on-road things and also increase our C3 compliant models as well to meet the market demand. So there is a lot of emission standards, pending development coming on stream in the next few years. So we believe the ratio should not deviate too much from what we have on a year-to-date basis.

Okay. Got it. Thank you for that. And then you mentioned cost cutting and plant consolidation and things like that, when might we see this reflected in the G&A line in the next few quarters?

Okay. Thank you. We just closed the Xiamen plant just in the third quarter, towards the end of third quarter. So in doing so, we’re able to consolidate our production according to the plant, in fact, it will make it a lot more efficient and by removing the Xiamen plant, we cut out a layer of also the manufacturing cost, or manufacturing overhead and also basically general overhead as well. So this reduction, we should expect to see some improvement in the cost, I think from the fourth quarter and of course during the next year. The plant is not fully closed.

Got it. And then just one last one on the gross margin, was it more of an impact on mix or would it just be overall decline in units sold and can we expect those to increase or improve given the margin conditions and the uncertainties that we have next year?

Okay. Let me just factor attributing to the gross margin improvement, like this year, with national 4 emissions, without any national 3, so national 4 engines has a higher average selling price and also has a better margin as well. And we also have sold public a little bit more this year of our high cost power, marine and power generation engines as well. Although the overall marine engine has declined, but the mix is still a little more towards the high cost power engines this year. So yeah, in a way, you’re right, the mix is a little bit better for us this year, that’s why we’re experiencing a little bit better gross margin.

Okay. Thank you. That’s all for me. Thanks.

We have the next question from the line of Don Espey from Shah Capital. Please ask your question.

Good evening, everyone. In light of Chinese government strong support for energy savings in electric vehicles, can you shed light on your hybrid and electric engine development?

Well, this is Kelvin. Let me answer this question. [Technical Difficulty] development for hybrid for about six or seven years, so that we had thousands of the hybrid systems being running on the road. We also in the last year and then the launch in plug in hybrid as well. And also is using the gas engine, so the gas engine becoming hybrid. So this is the ones for the -- and the model accepted by the market. Regarding on the ongoing development and then we will continue our investment on the hybrid but more or less, it will be depending on the what’s the other available on the technology from the market as well. Regarding on the electrical vehicles, this is one of the reason and it is of our current scope. So, we understand it is quite substantial incentive being putting into the electrical vehicle, for example for the buses and for the coaches that are being quite a lot of the customer and then they are enjoying at the moment. But having said that and then the incentive scheme is being frozen and also will be on a [indiscernible] in the year 2017, and 2018. So we wonder and if that trend and it would be continue or not, supporting the decreasing of the incentives. However and then, Yuchai has considered and how can we get into this region but I think this will be a more long-term strategy and we cannot come in at this stage because we don’t have such a demand.

What kind of diesel engine growth should we expect in 2016?

Tell again, I didn’t quite hear you.

Just what kind of diesel engine growth should we expect in 2016?

Well, as I said earlier, in 2016, there is still no market visibility even talking to our OEMs there is still a lot of uncertainty in the marketplace. Now let me give you an example, the government is still introducing the C3 standard, emission standard for off-road right now. And for all the engine manufacturers, they are not allowed to build anymore engine without anything below C3, C2 and below. However, the OEM manufacturer is allowed to continue this type of incorporated C3 engines into their machinery and sell it, until [indiscernible] OEM manufacturers who offer engines, who may or may not, some of them may from profile of C2 engines in their inventory so that they can sell them or build them into their engines and sell them over the next few months. So with this introduction of new emission standard and the timing of it, there is clearly an uncertainty in the marketplace. Whereas for the others like on-road engines and trucks and buses, the trucks, heavy-duty truck has been scrapped out profit significantly in terms of the growth, medium duty truck as well, we still can’t see clearly when you can said you will recover, whether you will recover next year or when you will recover. There is lot of -- so much uncertainty and too much visibility there.

And one more question, why doesn’t Yuchai provide forward guidance such as free cash flow estimates, as your subsidiary, GYMCL does provide this.

No, we have a policy of not providing forward guidance and have a policy of not providing forward guidance and as a policy we don’t do that.

And the other thing we like to add is a lot of those engine companies or industrial companies give guidance and they oftentimes miss the guidance and they have to revise that every quarter and we think this is pointless to give guidance if we don’t have visibility ourselves.

And one last question from us. Why hasn’t HLG been sold and the company used that money to buyback very inexpensive CYD stock given how low it’s come down?

Well, we have been looking at all options regarding HLG. At the end of the day, the amount of money we had to invest in there is not really that much, but we are looking at ways and means to maximize our value from there including develop or selling, we are looking at all options. In terms of buying back shares, the way the company look at things that we prefer to put cash in the hands of our investors and let them decide how they want to spend it rather than the company deciding for us.

Thank you.

We have the next question from the line of Paul Gong from Citi. Please ask your question.

Hi, sure. Hi, good evening everyone. May I ask three questions, if possible? The first question is I certainly understand at this moment how diesel engine industry has had some difficult situation and we do not see like near term hope to quickly turnaround yet, but have you calculated the long term replacement demand sale on the truck demand and the bus demand on the marine side? Obviously the truck is not doing well, the bus is kind of getting cannibalized by the electrical buses and so marine is also in the down cycle, but I just want to figure out like compared to the long-term replacement demand, are we currently running below or above or if below at what percentage of below of the long term replacement demand?

Okay, let me try to answer the question, it’s quite difficult. The demand for truck and buses has been on the decline. We see uncertainty the way it started from last year. So now also because of the slowdown in the economy, there has been a lot of bus orders, buses and truck that – of the truck but less for the bus that has been bought in the past. They are still not fully utilized, especially the logistics sector. So my guess is that the replacement time I think will be longer [indiscernible] the decline is not so bad and also they are used bus, mainly by the big companies especially within the inner cities of Beijing. For the inter-city buses where you ferry from one big city to another long range buses, this is really affected by the first of all the high speed trains. So in a way that we have seen a little bit of a shift away from those big buses versus the smaller buses whereby this bus, the smaller buses are use to ferry people from the smaller districts or towns to the train stations and others will take the high speed train. So in terms of replacement rate, demand rate so on, sorry it’s going to be very difficult to [indiscernible].

Well, because I get from the data which I think the load for traffic is still growing although at very slow pace and bus side is currently, all the bus is sold out basically to fulfill the replacement demand. So I am kind of like wondering are we at longer replacement therefore or are we actually running below the – I tend to think maybe on the truck side that we are probably like below the long-term replacement and therefore I just want to share your feeling like how much we are there?

Okay. So if you look at the passenger markets right now, I mean, if you include the electric vehicle in that, it has moved too much, right. However, if you remove the electric vehicle from the bus market, I mean in particular, you will see a decline in store. Okay. So in the case of bus market, especially particularly if it is affected by the [indiscernible] in the last year or two, so I think there has been a replacement in the way our bus market has been, in a way cannibalized by the bus. Okay. So for the diesel bus in particular, we were -- there is a bit of substation in there, I would say, rather than a replacement.

This is Kelvin. I believe that the -- it’s very difficult to answer your question on the right number in the replacement, because you have an understanding that the customer, I mean the people are changing their mind, especially in this very difficult season, for those sharp user, they’re going to extend the useful life of the vehicle before they consider replacement. So I think this is not actually formula, and then we can run it up, what the exact number on the replacement cycle, because in fact, all the user, they’re changing their minds from time to time. And for somebody in the bus market, because the incentive, so quite a lot of bus increase and then actually they’re replacing a bus earlier than what they’re used to be. So I think we don’t have a really right answer for your question at this time

Okay. Understood. Well, maybe, the second question is obviously the government is moving towards a national standard 4 and even 5 and we’re seeing our ASP, our margins kind of get helped with NS4, but we’re also getting impact relatively on the bottom side, so do you think net-net are we kind of like benefiting from this shifting to stricter environmental requirement or are we actually kind of waiting on that, because obviously with the rising environmental standards, the owners of this are getting more reluctant to buy trucks, right?

The way, yes, you’re right, but they still have to buy, right, unfortunately for Chinese niche, the economy has slowed down, but -- if you look in the past, so that has really affected the demand for these trucks in particular and in turn affected the demand for engine. So in terms of whether or not the customers will continue buying the trucks, knowing that there should be regular buying trend coming out, I think they would if that is right, but if it’s nearer the time of the implementation of national 5, then they may hold back, while it is a problem that maybe a year or two, they will still have to replace the vehicle.

Yeah. Sure. My third question is regarding, maybe this is little bit relevant, but correct me if I’m wrong, how do you think the Volkswagen diesel engine scandal would impact the diesel technologies as a whole or is that relatively limited within the specific company or specific passenger vehicle models or is it going to actually impact the diesel engines or even technology routines as a whole, what’s your thought on that?

Volkswagen is an OEM, they also make their own engines. We only produce engines, we’re an independent engine provider. If our OEM customers like [indiscernible] or our end users like truck drivers find out there is a cheating going on in the engine emission control. The OEM will not only lose customers but also they will face severe penalty from ETA. Therefore, the OEM will do anything to make sure the emission of their procure engine meets the standard because OEMs have too much to lose especially when someone else is responsible for the quality of the engine. So Volkswagen’s case once again actually shows the need to have check certain balances in the supply chain. Having an independent engine maker to supply to many OEMs is the best way to ensure quality is up to standard and to mitigate any kind of fraudulent activities like what we saw with Volkswagen.

Okay, sure, thank you very much, will come with the queue.

Okay. I guess, there was a question from webcast, the question is, can you talk about the trend on diesel engine market share in the commercial vehicle market level in China. Is there a secular shift away from diesel field going on in the commercial segment or the trend stabilize at some point, why and how globally. Okay, the commercial vehicle segment market in China I think is going through a very difficult time right now especially the heavy-duty and medium-duty segment. The light-duty segment is doing better comparatively to the other two. Is there a shift away from diesel? Now there is a lot of this insight data, there is a very strong coming that is right now to try of move increase the number of electrical vehicle in the marketplace, and this vehicle is incentivized plus it’s significant. However, the incentive will be – will start to decline or reduce starting from 2017. So, whether or not the current move towards electric vehicle sales which is growing very rapidly can be sustained, I think that’s questionable. But from our point of view, the diesel engine will continue to be, I think within a short-term or medium term, the main engine use in the commercial segment. Now, globally, I just wanted to note, this year, we have done very well in spot market. Our spot market so far this year has increased by about 37% compared to the same period last year. This is slowdown in the Chinese market, we and in fact many of our competitors too put more focus on the global market and it was more of our engine globally. There is another question here relating to the our growth for 2015, 2016 for off-road segments of construction, agriculture and marine power generation process. As I said earlier, before that, construction segment of the off-road market is still going through a very, very difficult time. We still continue to see a significant decline so far this year, and we think it will continue into next year, we are not seeing a lot of construction for residential buildings. The agriculture because of the introduction of the C3 emission standards, it will affect our sales at least in the next six months, until the OEMs are required to use the C3 engines in their vehicle or in their equipment. Until then, we can expect to see a decline or drop in the agriculture engine segment. Marine and power generation is now going through a difficult path, there also, we’re seeing a decline in the whole industry and we ourselves also sort of declined. Now, we are -- for 2016, again as I said earlier, there is very little visibility out there, the market is very uncertain, so it’s very difficult to give a very accurate outlook for the 2016 market. Okay, there is a question here regarding, Yuchai see a lost major market share in the third quarter with sales declines of four types of markets in general. Do you expect this to continue? Now, again if I have look at it and yes in terms of the on-roads engines, yes, we have lost some market share there. One of the major impact on us is the affect of the electrical vehicle which is affecting our bus market for us. It’s a result [indiscernible] and the other one is the low sales of steel price has affected us in the way especially for our gas engine. So that has affected, for the bus market we are affected by these two areas. In the case of trucks, I think the home market is down [indiscernible] heavy duty and medium duty. We are down to like a little bit more than the market, but we don’t expect this to continue to decline certainly going forward. We are probably more in line with our markets. However, in terms of the overall market share, from our own data including those on-roads, off-roads together, we have not seen very significant drop in our own markets in the market share in terms of units – number of units of engines for the both the nine months and the third quarter.

Thank you all for participating in the conference call. We have come to the end of our Q&A session now. We look forward to speaking with you again. See you next time. Thank you.

Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.